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Wednesday, 20 November 19
FOREIGN DIRECT INVESTMENTS IN COMMERCIAL COAL MINING IN INDIA? - DIPESH DIPU
 In August 2019, Government of India announced its approval for Foreign Direct Investment (FDI) for coal mining, processing and sale. Not that FDI in coal mining sector was new, but novelty in that was that government now permitted foreign ownership of coal mines for commercial sale of coal produced from such mines. He justifications provided by government sources included need for competition in a sector that has been traditionally dominated by government-owned companies Coal India Limited and Singareni Collieries Company Limited; need for enhanced production as here has been shortfall in meeting demand; and, need for newer technologies that may bring in sustainability to coal mining. These indeed are commendable objectives and opening up the sector for foreign participation may certainly be considered a step in the right direction. However, public policy needs to be grounded in realism, and the reality of attractiveness of commercial coal mining in India does not bode well for foreign participation.
The response of government-owned companies for coal blocks on offer for allotment for commercial coal mining was announced in early August 2019 provides the evidence. Nine coal blocks were put on offer for sale of coal in markets and the eligibility for these were restricted to government-owned companies including the state government-owned ones. There were, however, only three coal blocks[1] that received applications by NMDC Limited, Jharkhand State Mineral Development Corporation and Madhya Pradesh State Mining Corporation. This lukewarm response may indicate towards the market sentiments for commercial coal mining in India. It must also be considered here that the coal blocks for allotment for government-owned companies do not have the two-stage auction based bidding for winning the blocks and, thus, the pay-out required to win these coal blocks may be lower in comparison to coal blocks put out for auctions. So, even with lower additional pay-out to government in the form of premium the coal blocks have not found many takers. There may be several underlying economic reasons, which are amplified for foreign participants, and thus, require consideration to evaluate if this approval for FDI in commercial coal mining would have any impact and if it would meet its stated objectives.
The first and the foremost is the economic feasibility of these mines. The foreign, and indeed any private company, would have to participate in auction process for winning a coal block, and commit to a competitive premium to access the resources. This has been an impediment for private sector participation in India, given the evidence of coal blocks awarded for captive consumption in power and non-regulated sectors that include cement, steel and other approved end users. There seems to be some sanity dawning on participants on these auction with every successive rounds of auction, seen from the lower winning premiums, and hence, it may be expected that the trend may continue. Nonetheless, the premium will certainly erode the margins for commercial miners, the extent of this erosion would be a function of degree of competition for the coal blocks. The margins are also likely to be uncertain in view of the price volatility of coal, which in Indian market is pegged with CIL price and a certain premium that reflects typically the discount that IL prices tend to have over energy-equivalent international prices. This uncertainty of prices is likely to be confounded by the uncertainty in demand-supply gap that these commercial miners are required to fulfil. There has been a shortfall in supply in the recent past, evident from the rise in coal imports in the last two years even with the stated objective of the government to reduce coal imports. This may present itself as an opportunity. However, the question is whether this shortfall is likely to sustain, and thus, create a marketplace for commercial miners. With a slump in thermal power generation and nearly absent pipeline of new coal based projects, this assumption may be quite a big one to make and decide in favour of making foreign direct investment in Indian coal mining.
Other important risks pertain to project execution. There have been several impediments in coal mining project implementations, such as procurement of licenses and permits, acquisition of land and rehabilitation and resettlement of project affected people. These, apart from the procedural challenges, involve risk of reputation. Business practices on all these accounts in mining sector have often been marred with controversies and have led to perceptions of externalities in these processes having significant influence on the outcomes. Foreign participants in Indian mining have been wary of these, and hence, have had little success to show even though they have had offices and a few exploration and contract mining projects in India. Apart from reputation, the risks in procurement of licenses and land acquisition create the risks of project delays, which may then translate into cost escalations, thereby impacting project economics. Coal mining projects may have such challenges in attracting foreign direct investment.
There are challenges of talent shortage and financing as well. Innovative technologies that the foreign miners are likely to bring in India will require high quality geo-statisticians, geologists, mine planners and mining engineers. India does produce graduates in these areas of study but quantities do no necessarily reflect quality, which are further compounded by the brain drain of talent into other industries, primarily, information technology. Mining industry in general, and coal mining in particular, has not been able to retain relent in the last decade or so, with advent of opportunities for the smart geoscientists and engineers in alternate industries. Foreign mining companies may find this crippling.
There are challenges in financing too. Coal mining projects may have been good candidates for resource-based financing, but that has not happened on account of several factors, not the least of those being dominance of government-owned companies priding themselves on debt-free balance sheets, and the quality of geological information that may be inferior to global standards. The market for debt for coal mining then often reduces itself to equipment financing with the equipment being securitised to the lenders. Globally preferred model of equipment leasing is still in its relatively early stages of comprehension and acceptance in Indian mining. With limited options of raising finances, the higher degree of equity investments may also be a deterrent for foreign investors as the may have comparable projects competing for scarce capital.
Coal mining industry has been on a downward spiral globally. Foreign large miners have divested or are divesting their stakes in coal projects. Global bankers have committed themselves to not financing coal and coal based power projects. Insurance companies are shying away from coal projects too. The ecosystem for coal mining project execution is dying. Epitaphs are being written on coal and its demise is predicted by governments, investors and policy analysts wold over. But for the coal addiction of Asia, China and India in particular, the demise may have been sooner. Under such gloomy outlook for the industry, with coal mining companies filing for bankruptcies frequently, it would be tough to get these foreign companies to look at Indian destinations favourably. An industry staring at terminal decline may not witness new investors, and old ones that may have been facing severe challenges in their home countries to look out for opportunities in India.
Optimism at this point of time of foreign miners participating in Indian coal mining sector, that presents a challenging business environment, may be misplaced. Only when the government calls for applications for coal blocks for sale of coal with permitted participation for foreign direct investment that the final picture shall emerge.
By Dipesh Dipu
Energy, Natural Resources and Infrastructure Expert
This article originaly published on economictimes and Linkedin
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Saturday, 30 November 19
IMO2020 GLOBAL SULPHUR CUT: GERMAN SHIPPING TO USE NEW TYPE OF FUEL VDR SURVEY
IMO2020 Global sulphur cut: German shipping to use new type of fuel VDR survey: Technical issues and costs are the biggest challenges - VDR
&nb ...
Saturday, 30 November 19
PANAMAX: LEVELS IMPROVED IN THE PACIFIC MARKET TOO WITH $11,000 BEING CONCLUDED ON AN 81,000DWT SHIP FOR AN INDONESIA TO CHINA COAL TRIP - BALTIC BRIEFING
Capesize
The market has been well supported over the past week, led primarily by the Atlantic Basin. After bottoming last week, sentiment was s ...
Friday, 29 November 19
FITCHRATINGS MAINTAINS NEGATIVE 2020 OUTLOOK ON SHIPPING, AS TIGHTER SUPPLY HELPS, BUT SOFTER DEMAND DRAGS
Fitch’s Sector Outlook: Negative
We maintain a negative sector outlook for global shipping because of the forecast slowdown of ...
Friday, 29 November 19
INDONESIA PRODUCES 390 MLN TONNES OF COAL IN JAN-SEPT: MINISTER - REUTERS
Indonesia’s production of coal for the January-September period was 390 million tonnes, Energy and Mineral Resources Minister Arifin Tasrif s ...
Wednesday, 27 November 19
SHIPPING MARKET INSIGHT - INTERMODAL
As the end of the fourth quarter is approaching, one could say that the wet market has maintained the strong pace observed during the third qu ...
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- Eastern Coal Council - USA
- MS Steel International - UAE
- Sinarmas Energy and Mining - Indonesia
- SN Aboitiz Power Inc, Philippines
- Meralco Power Generation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vizag Seaport Private Limited - India
- Eastern Energy - Thailand
- Minerals Council of Australia
- GMR Energy Limited - India
- Orica Australia Pty. Ltd.
- Indogreen Group - Indonesia
- Renaissance Capital - South Africa
- Lanco Infratech Ltd - India
- Malabar Cements Ltd - India
- Chettinad Cement Corporation Ltd - India
- Sical Logistics Limited - India
- Star Paper Mills Limited - India
- Alfred C Toepfer International GmbH - Germany
- Sakthi Sugars Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kumho Petrochemical, South Korea
- International Coal Ventures Pvt Ltd - India
- Tamil Nadu electricity Board
- VISA Power Limited - India
- The University of Queensland
- Timah Investasi Mineral - Indoneisa
- Coalindo Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Thiess Contractors Indonesia
- Electricity Generating Authority of Thailand
- Thai Mozambique Logistica
- Offshore Bulk Terminal Pte Ltd, Singapore
- PNOC Exploration Corporation - Philippines
- India Bulls Power Limited - India
- Mjunction Services Limited - India
- Independent Power Producers Association of India
- Intertek Mineral Services - Indonesia
- Australian Commodity Traders Exchange
- Kartika Selabumi Mining - Indonesia
- TeaM Sual Corporation - Philippines
- Wood Mackenzie - Singapore
- Bukit Baiduri Energy - Indonesia
- Carbofer General Trading SA - India
- CIMB Investment Bank - Malaysia
- Edison Trading Spa - Italy
- South Luzon Thermal Energy Corporation
- Aboitiz Power Corporation - Philippines
- Gujarat Sidhee Cement - India
- Formosa Plastics Group - Taiwan
- GN Power Mariveles Coal Plant, Philippines
- Karbindo Abesyapradhi - Indoneisa
- IEA Clean Coal Centre - UK
- PowerSource Philippines DevCo
- Siam City Cement - Thailand
- Bhoruka Overseas - Indonesia
- Semirara Mining Corp, Philippines
- Barasentosa Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Ambuja Cements Ltd - India
- Coastal Gujarat Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Agrawal Coal Company - India
- Standard Chartered Bank - UAE
- Kobexindo Tractors - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Petrochimia International Co. Ltd.- Taiwan
- Ceylon Electricity Board - Sri Lanka
- The Treasury - Australian Government
- OPG Power Generation Pvt Ltd - India
- Parry Sugars Refinery, India
- Goldman Sachs - Singapore
- Kepco SPC Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Sarangani Energy Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Latin American Coal - Colombia
- Jaiprakash Power Ventures ltd
- Mercator Lines Limited - India
- Global Coal Blending Company Limited - Australia
- Bhushan Steel Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Bulk Trading Sa - Switzerland
- Petron Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Medco Energi Mining Internasional
- Australian Coal Association
- Vijayanagar Sugar Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Baramulti Group, Indonesia
- Ind-Barath Power Infra Limited - India
- Ministry of Finance - Indonesia
- GAC Shipping (India) Pvt Ltd
- Indo Tambangraya Megah - Indonesia
- Oldendorff Carriers - Singapore
- Port Waratah Coal Services - Australia
- Dalmia Cement Bharat India
- Siam City Cement PLC, Thailand
- GVK Power & Infra Limited - India
- Directorate Of Revenue Intelligence - India
- Manunggal Multi Energi - Indonesia
- New Zealand Coal & Carbon
- Singapore Mercantile Exchange
- Salva Resources Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Samtan Co., Ltd - South Korea
- McConnell Dowell - Australia
- Meenaskhi Energy Private Limited - India
- Mercuria Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Rio Tinto Coal - Australia
- The State Trading Corporation of India Ltd
- Power Finance Corporation Ltd., India
- Riau Bara Harum - Indonesia
- Vedanta Resources Plc - India
- Videocon Industries ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- ASAPP Information Group - India
- Central Electricity Authority - India
- Larsen & Toubro Limited - India
- Parliament of New Zealand
- Iligan Light & Power Inc, Philippines
- Heidelberg Cement - Germany
- Cement Manufacturers Association - India
- Georgia Ports Authority, United States
- Semirara Mining and Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Toyota Tsusho Corporation, Japan
- Altura Mining Limited, Indonesia
- London Commodity Brokers - England
- Metalloyd Limited - United Kingdom
- Billiton Holdings Pty Ltd - Australia
- Marubeni Corporation - India
- Deloitte Consulting - India
- Karaikal Port Pvt Ltd - India
- Borneo Indobara - Indonesia
- Orica Mining Services - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Merrill Lynch Commodities Europe
- Kapuas Tunggal Persada - Indonesia
- Bangladesh Power Developement Board
- Sindya Power Generating Company Private Ltd
- SMC Global Power, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Ministry of Mines - Canada
- Sree Jayajothi Cements Limited - India
- Cigading International Bulk Terminal - Indonesia
- Madhucon Powers Ltd - India
- LBH Netherlands Bv - Netherlands
- Electricity Authority, New Zealand
- Indonesian Coal Mining Association
- Interocean Group of Companies - India
- Bayan Resources Tbk. - Indonesia
- Africa Commodities Group - South Africa
- Commonwealth Bank - Australia
- Straits Asia Resources Limited - Singapore
- Jindal Steel & Power Ltd - India
- Global Business Power Corporation, Philippines
- Anglo American - United Kingdom
- Kideco Jaya Agung - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Attock Cement Pakistan Limited
- Sojitz Corporation - Japan
- Aditya Birla Group - India
- Miang Besar Coal Terminal - Indonesia
- Indian Oil Corporation Limited
- Posco Energy - South Korea
- Globalindo Alam Lestari - Indonesia
- ICICI Bank Limited - India
- San Jose City I Power Corp, Philippines
- Bukit Makmur.PT - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- PetroVietnam Power Coal Import and Supply Company
- Indian Energy Exchange, India
- Maheswari Brothers Coal Limited - India
- Simpson Spence & Young - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Romanian Commodities Exchange
- Pendopo Energi Batubara - Indonesia
- Trasteel International SA, Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Grasim Industreis Ltd - India
- Binh Thuan Hamico - Vietnam
- Kohat Cement Company Ltd. - Pakistan
- SMG Consultants - Indonesia
- Chamber of Mines of South Africa
- Banpu Public Company Limited - Thailand
- Asmin Koalindo Tuhup - Indonesia
- Price Waterhouse Coopers - Russia
- Jorong Barutama Greston.PT - Indonesia
- Central Java Power - Indonesia
- Antam Resourcindo - Indonesia
- Bharathi Cement Corporation - India
- Neyveli Lignite Corporation Ltd, - India
- Xindia Steels Limited - India
- Energy Development Corp, Philippines
- Krishnapatnam Port Company Ltd. - India
- Mintek Dendrill Indonesia
- Kaltim Prima Coal - Indonesia
- PTC India Limited - India
- Planning Commission, India
- Therma Luzon, Inc, Philippines
- Indika Energy - Indonesia
- CNBM International Corporation - China
- Essar Steel Hazira Ltd - India
- White Energy Company Limited
- Ministry of Transport, Egypt
- Pipit Mutiara Jaya. PT, Indonesia
- Economic Council, Georgia
- Wilmar Investment Holdings
- Coal and Oil Company - UAE
- European Bulk Services B.V. - Netherlands
- Bhatia International Limited - India
- Global Green Power PLC Corporation, Philippines
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